Forstmann Said to Make Deal for Talent Agency

By ANDREW ROSS SORKIN

Published: September 30, 2004

Correction Appended

In what could be the last big deal of his career, Theodore J. Forstmann and his buyout firm Forstmann Little & Company agreed yesterday to acquire IMG, the talent agency, for $750 million in cash, executives close to the negotiations said.

Mr. Forstmann's deal for IMG, whose client list reads like a who's who of athletes, models and other stars including Tiger Woods, Elizabeth Hurley, Derek Jeter and Liv Tyler, ends the uncertainty surrounding the talent firm, whose founder, Mark McCormack, died last year.

The agency, which helped to create the modern athlete-endorsement business and has nearly $1 billion in annual revenue, also owns broadcast and distribution rights to several sporting events as well as other television programming. It represents prestige events like the Wimbledon tennis tournament and the Grammy Awards.

From Mr. Forstmann, IMG will get much-needed capital -- along with his Rolodex -- to help expand its reach in sports, entertainment and television, areas where it is already considered a power broker.

Still, the deal may well be the last hurrah for Mr. Forstmann, 64, the colorful financier who helped create the buyout business in the 1970's and 1980's. He has told associates that he does not plan to raise another investment fund after this latest one expires in 2006.

This acquisition is the first that Mr. Forstmann has pursued in three years since two telecommunications deals ran into trouble and a bitter lawsuit ensued with one investor, the State of Connecticut's pension fund. The case was settled after a jury returned a mixed verdict.

The deal for IMG was approved last night by the company's board and the trustees of Mr. McCormick's family, executives involved in the deal said. It is expected to be announced this morning.

The buyout may be a perfect match for Mr. Forstmann, putting him squarely in the middle of a business all about his favorite pastime: deal making. He is expected to become IMG's chairman as he assembles a board, the executives said, and will most likely become a hands-on partner, using his skills as a salesman to make deals on behalf of the agency, in much the same way he did in reviving Gulfstream Aerospace in the early 1990's, flying around the world to sell the company's jets.

The top executives of IMG, Robert D. Kain and Alastair J. Johnston, will remain as the day-to-day managers, the executives said, and will buy equity stakes.

Still, Mr. Forstmann may face formidable challenges. For one, he has never owned and operated a service business like IMG, where people and their egos and personalities are the heart of the organization.

The industry is also becoming increasingly competitive as rivals like the SFX Sports Group, which turned Michael Jordan into a commercial sensation and now represents clients like the tennis star Andy Roddick, gain more influence. And as IMG moves even more into television production and distribution, its circle of competitors expands to include the world's biggest and most powerful media companies.

But for Mr. Forstmann, an avid tennis and golf player, IMG has been of interest for some time, the executives said. He was a longtime friend of Mr. McCormick, who sat on Gulfstream's board, and the two had talked about becoming partners before his death in 2003, the executives said.

Indeed, it was Mr. Forstmann's relationship with Mr. McCormick and his wife, Betsy Nagelsen McCormick, that, the executives said, helped him win the auction, which included dozens of other bidders including advertising giants like the WPP Group and other private equity firms like Kohlberg Kravis Roberts.

Mr. Forstmann's bid was also helped because his offer required no bank financing, the executives said, as he used his equity fund and a subordinated debt fund, an unusual structure that has set his firm apart.

While Mr. Forstmann's firm has not made any acquisitions since it bought Citadel Communications in January 2001 -- in part, because it was dealing with the lawsuit and because it found nothing else attractive, according to executives close to the firm -- it has been selling down its stakes in several companies and returning about $2.5 billion to its investors.

And while the IMG deal may well be his last, Mr. Forstmann could still surprise Wall Street. His fund has roughly $1.5 billion that must be spent by June 2006 or returned to his investors.

Photos: The buyout firm Forstmann Little, led by Theodore J. Forstmann, left, is said to be in a deal for IMG, whose client list includes the model Elizabeth Hurley and the golfer Tiger Woods. (Photo by Steven E. Frischling/Bloomberg News)

Correction: October 1, 2004, Friday
An article in Business Day yesterday about the agreement by Forstmann Little & Company to buy IMG, the talent agency, misspelled the surname of the late founder of IMG at one point. He was Mark McCormack, not McCormick.